Nokia and Siemens merge units to fight Ericsson

Nokia and Siemens are to merge some operations to create a joint venture capable of taking on the likes of Alcatel-Lucent and Ericsson.

The union is aimed at making both companies bigger players in the fixed-mobile convergence (FMC) market, where consumers use a single device to make calls over both mobile and landline networks. The combined company will also allow the pair to offer quadruple-play services of TV, broadband access, fixed and mobile telecoms.

Nokia's networks business group will now be united with Siemens' carrier related operations to form a new company, to be known as Nokia Siemens Networks and owned 50-50 between the two equipment makers. Nokia CEO Olli-Pekka Kallasvuo will take up the role of chairman, while the Finnish company's current general manager of networks, Simon Beresford-Wylie, will do the honours as CEO.

Siemens CEO Klaus Kleinfeld said the creation of the joint venture has been driven by the trend towards IP and new Asian competitors. "Consolidation is the name of the game therefore we believe it's the right move for us," he said. It will be "a beautiful fit of two excellent companies coming together," Kleinfeld added.

The move follows recent restructuring at Siemens, which saw the overhaul of its telecoms division and subsequent sell off of its mobile unit to Taiwanese company BenQ, followed by the announcement of a sweeping series of redundancies in order to cut costs at the company.

Nokia and Siemens are also aiming to save cash through the marriage, predicting cost reductions of €1.5bn per year by 2010. Redundancies will also be made as a result of the merger, with between 6,000 and 9,000 staff expected to lose their jobs.

Industry watchers have reacted favourably to the merger, with both parties potentially winning from the deal - Nokia gaining from Siemens' experience in fixed line, Siemens from Nokia's management experience.

Dr Richard Windsor, technology and communications analyst at Nomura International, said the move was risky due to Nokia's lack of a fixed-line presence but added the benefits of scale will help both companies. "Nokia's management will be tasked with turning around a business that Siemens' management have been trying to turn around for five years," he told silicon.com.

Windsor added that the new company was unlikely to put huge competitive pressure on the two major players in the sector, Alcatel-Lucent and Ericsson.

Nokia's Kallasvuo said the newly formed company will be able to take on and win against more established competitors.

He said: "We are slightly smaller [than our main competitors] and we like that. The new company has to have the attitude of a challenger - fiercely competitive with an unerring focus on the customer."